The Ethics of a Trade

But she wears short skirtsI wear T-shirtsShe's Cheer Captain
andI'm on the bleachersDreaming about the dayWhen you wake up and
findThat what you're looking for has beenHere the whole time.

-
Taylor Swift

At 6:03 a.m. PST on September 11, 2001, I was sitting at
my desk watching the unfolding horror in New York City when the second hijacked
airplane crashed into the south tower of the World Trade Center. Seeing it live
on television erased any doubt in my mind this was a coordinated terrorist
attack and that the markets would go into a tailspin.

As a fiduciary for
pension, endowment, public and private sector funds (and being well into my
workday), my first thought was for my clients. I spun around in my chair and
asked electronically for three $300 million offerings of the 30-year U.S.
Treasury. In a flash, offer prices blipped on my screen that matched levels in
the marketplace just seconds before. The market may be efficient, but it hadn't
caught up to the new world pricing that was sure to come.

Normally, one
asks for several offerings in order to ensure getting the best price. But that
day, my plan was to execute all three trades, putting nearly a billion dollars
on the line in what I was quite confident was a winning bet.

Just as
quickly as I decided what to do, I decided not to do it.

September 11
means a lot of things to a lot of people and this is just one snippet of what
comes to my mind when I think of that day.

In retrospect, this would have
been a fantastic trade assuming The Street would have honored it — and I firmly
believe they would have. On the other hand, I wasn't simply placing a bet in the
markets as was my job at that time. I was preying on the relationships that were
crucial to serving my clients over the long term by taking advantage of a flawed
trading system.

It was a dilemma that played out in about 3.4 seconds,
and I'm honestly still not sure whether I made the right decision.

The
Goldman case is entirely different.

Without rehashing the details here,
Goldman was not living up to the duty it owed to its clients — or at least that
is the accusation.

I believe that above everything else, corporations
must put their clients first. Silicon Valley Bank is an employer that encourages
its workers to think outside the box for ways to do just this. And that is why
we have been so successful working with entrepreneurs.

Unfortunately,
there are too many in the financial sector who do not think or act this way. In
fact, they joined the financial world only to make a quick buck, whether it's in
the hedge fund arena, investment banking, or even conventional
banking.

The bubble of employment growth in this sector has burst and to
those with anti-client attitudes that will no longer work in our sector, I say
"good riddance!"

Of course, it will take some shaking out and the Goldman
case is surely just the first of many to come. The ratings agencies will
possibly be investigated as highlighted by California congressman Darrell Issa
last week when he asked, "How could John Paulson know that [the securities in
the Goldman transaction] were bad mortgages and Moody's couldn't
know?"

At the end of the day, better, more intelligent regulation as well
as more motivated and sophisticated regulators will improve our financial
system.

On September 13, with the markets closed, after many
conversations with traders in New York and elsewhere, I was able to swap $1
billion FNMA securities for the same amount of GNMA securities (fixed income
securities trade over-the-counter and, therefore, are not required to abide by
traditional market trading hours or days). This was a slight increase in credit
quality which benefited the clients when the markets opened four days
later.

It took a lot of work, but at the end of the day it was my Street
relationships that benefited my clients. Because I had been a good business
partner I was able to secure significant value for my clients. In fact, the duty
to my clients required efforts to build and maintain these relationships, which
surely would have been harmed by the possible 9/11 trade, so maybe I did do the
right thing after all.

It is tempting sometimes to go for the flashy
option, but as Taylor Swift demonstrates in nothing more than an updated version
of The Tortoise and the Hare, it is our partners who strive for long-term
relationships that are the best choice.

Key
Developments

The Producer Price Index rose 0.7 percent in March after
declining 0.6 percent in February. Year-over-year it rose a whopping 6.0
percent; however, the core measure which takes away food and energy prices was
up only 0.9 percent after rising just 0.1 percent in March.

Both existing
and new home sales spiked as we get closer to the expiration of the homebuyer
tax credit. Existing home sales rose 6.8 percent to a 5.35 million unit pace
while new home sales increased a shocking 26.9 percent to a 411,000
pace.

Durable goods orders fell by 1.3 percent in March after rising 1.1
percent in February ending three months of gains. A significant decline in
aircraft orders held back the measure during the month, masking a fairly strong
showing.

The views expressed in this column are
solely those of the author and do not reflect the views of SVB Financial
Group, or SVB Asset Management, or any of its affiliates. This
material, including without limitation the statistical information
herein, is provided for informational purposes only. The material is
based in part upon information from third-party sources that we believe
to be reliable, but which has not been independently verified by us and,
as such, we do not represent that the information is accurate or
complete. The information should not be viewed as tax, investment, legal
or other advice nor is it to be relied on in making an investment or
other decisions. You should obtain relevant and specific professional
advice before making any investment decision. Nothing relating to the
material should be construed as a solicitation or offer, or
recommendation, to acquire or dispose of any investment or to engage in
any other transaction.

SVB Asset Management, a registered investment advisor, is a non-bank
affiliate of Silicon Valley Bank and member of SVB Financial Group.
Products offered by SVB Asset Management are not FDIC insured, are not
deposits or other obligations of Silicon Valley Bank, and may lose
value.

But she wears short skirtsI wear T-shirtsShe's Cheer Captain andI'm on the bleachersDreaming about the dayWhen you wake up and findThat what you're looking for has beenHere the whole time.

- Taylor Swift

At 6:03 a.m. PST on September 11, 2001, I was sitting at my desk watching the unfolding horror in New York City when the second hijacked airplane crashed into the south tower of the World Trade Center. Seeing it live on television erased any doubt in my mind this was a coordinated terrorist attack and that the markets would go into a tailspin.

As a fiduciary for pension, endowment, public and private sector funds (and being well into my workday), my first thought was for my clients. I spun around in my chair and asked electronically for three $300 million offerings of the 30-year U.S. Treasury. In a flash, offer prices blipped on my screen that matched levels in the marketplace just seconds before. The market may be efficient, but it hadn't caught up to the new world pricing that was sure to come.

Normally, one asks for several offerings in order to ensure getting the best price. But that day, my plan...Read More